2025 (9) TMI 311 - HC - Income Tax

Additions under s. 68 deleted after assessee met initial onus and revenue failed to rebut unexplained cash credits

HC upheld concurrent findings of CIT(A) and ITAT in favour of the assessee. Additions under s. 68 for unexplained cash credits were deleted because the ... Unexplained cash credit u/s 68 - assessee had suppressed its yield and had indulged in unaccounted production and sales - burden of proof - ITAT deleted addition - HELD THAT:- Finding recorded by the CIT (Appeals) has been duly affirmed by the ITAT observing that the assessee has discharged the initial onus under Section 68 and the burden shifted upon the Revenue to disprove the same, which has not been discharged competently by the Revenue. Therefore, we find that the concurrent findings recorded by the two authorities that the Revenue has failed to discharge the burden is the correct finding of fact based on evidence available on record, it is neither perverse nor contrary to the record. Thus, we endorse the findings recorded by the CIT (A) upheld by the ITAT on the issue with regard to unexplained cash credit u/s 68 - Decided in favour of assessee. Unaccounted sales based on estimated production yield of 89% in the assessee’s SMS Division - ITAT deleted addition - HELD THAT:- CIT(A) and the ITAT, both, after objectively analysing the factual situation, found complete absence of any adverse material against the assessee which can support the allegation of the AO towards unaccounted production presumed on the basis of alleged low yield declared by the assessee. Thus, in complete absence of any adverse material, both the authorities have concurrently reached to the conclusion that the addition made by the AO is baseless and without any evidence, therefore, the rejection of books of accounts is invalid and addition made by the AO on account of alleged suppression of yield is based upon mere guess work. It was further held by the two authorities that the yield declared by the assessee is neither low nor the books maintained by the assessee could be impeached by some tangible evidence/material on record and therefore the ITAT has rightly confirmed the order of the CIT (Appeals) and proceeded to dismiss the appeal filed by the Revenue. - Decided in favour of assessee. 1. ISSUES PRESENTED AND CONSIDERED 1. Whether the Income Tax Appellate Tribunal was justified in deleting addition of Rs. 8,80,00,000 made by the Assessing Officer under Section 68 of the Income Tax Act on account of unexplained cash credit (share application money)? 2. Whether the ITAT was justified in deleting the addition of Rs. 78,71,592 made by the AO on the ground of alleged suppressed yield and unaccounted production/sales (rejection of books / estimation of yield)? 3. Whether the AO's alleged action of making additions in respect of concluded assessments towards undisclosed income was within or beyond the scope of authority vested under Section 153A of the Act? (framed but subsequently treated as academic) 2. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Deletion of addition under Section 68 (unexplained cash credit / share application money) Legal framework: Section 68 places an initial onus on the assessee to explain identity, genuineness and creditworthiness of persons from whom share application money/other credits are received; once initial onus is discharged, burden shifts to Revenue to disprove credit. Precedent treatment: The Court and tribunals relied upon binding precedents holding that once identity and receipt are proved, mere suspicion is insufficient; source of funds of investor is not the assessee's onus absent incriminating material. Jurisdictional High Court and Supreme Court precedents treating genuineness and creditworthiness as precluding additions when satisfactorily established were followed. Interpretation and reasoning: The CIT(A) examined documentary evidence (ITRs, audit reports, bank statements, affidavits, corporate records, board minutes, investors' assessments) and found identity, receipt, genuineness and creditworthiness satisfactorily explained. The CIT(A) and ITAT noted absence of any independent incriminating material or nexus between the share money and undisclosed income, occurrence of receipt through banking channels, scrutiny assessments of subscriber entities, partial refunds through banking channels, and acceptance of similar credits in related group cases by the same AO. The AO's adverse inference was characterized as conjecture, surmise and suspicion lacking tangible material. Ratio vs. Obiter: Ratio - where the assessee discharges initial onus under s.68 by appropriate documentary evidence and there is no independent incriminating material, Revenue must disprove the explanation; additions cannot be sustained on conjecture. Observations on comparative treatment of other group cases and factual matrix are applied as factual ratio in the present controversy. Conclusion: Concurrent findings of CIT(A) and ITAT that initial onus under Section 68 was discharged and Revenue failed to disprove explanations are supported by record and not perverse; deletion of the Rs. 8,80,00,000 addition under Section 68 is upheld in favour of the assessee and against Revenue. Issue 2 - Deletion of addition for alleged unaccounted production/sales (rejection of books; estimation of yield) Legal framework: Principles governing rejection of books of account and assessments based on estimation require material/evidence to justify departure from declared records; tax authority cannot make pure guess or base additions on mere suspicion - assessments based on conjecture are impermissible (principles analogous to Section 145(3) jurisprudence and established Supreme Court dicta). Precedent treatment: The Court invoked the principle from long-standing precedents that an assessing authority is not entitled to make a pure guess without evidence; there must be something more than bare suspicion to support an adverse estimation or rejection of declared yield/books. Interpretation and reasoning: The CIT(A) and ITAT conducted objective factual scrutiny and found absence of adverse material to impeach books or to support presumption of unaccounted production based on an assumed 89% yield. The AO's estimate was held to be founded on conjectures and surmises without tangible evidence; declared yield was not demonstrably low when measured against material on record. Therefore the AO's rejection of accounts and resultant addition lacked evidentiary basis. Ratio vs. Obiter: Ratio - additions predicated on guessed production/sales without supporting material are invalid; concurrent appellate findings that additions are baseless are factual conclusions legitimately grounded on record. Observations reiterating the need for material beyond suspicion are applied as legal ratio. Conclusion: The deletion of the Rs. 78,71,592 addition relating to alleged unaccounted sales is affirmed; absence of evidentiary basis for the AO's estimation renders the addition unsustainable. The second substantial question is answered in favour of the assessee and against Revenue. Issue 3 - Whether AO's additions in respect of concluded assessments fall within scope of Section 153A Legal framework: Section 153A empowers reassessment/assessment consequent to search and seizure, subject to legal limits and scope; issues arise whether AO may make additions in search assessments touching upon concluded earlier assessments. Precedent treatment: The question was framed but not extensively adjudicated on merits because primary issues (Sections 68 and yield additions) were decided in favour of the assessee; leading appellate conclusions rendered the question academic. Interpretation and reasoning: Given that deletions under the first two issues disposed of the Revenue's material allegations and the concurrent findings removed the factual underpinning for alleged undisclosed income recoverable via Section 153A, the Court found the third question lacked independent consequence and declined detailed adjudication. Ratio vs. Obiter: Obiter - non-decision on substantive scope of Section 153A in this appeal; the treatment of this question is an incidental finding that it is rendered academic by prior answers. Conclusion: Substantial Question No. 3 is rendered academic and not dealt with in detail; appeal disposed without entertaining this issue further. Overall Conclusion The Court upholds concurrent appellate findings: additions under Section 68 and for alleged unaccounted yield/sales were unsustainable on record; Revenue failed to discharge burden to disprove explanations and the AO's estimations amounted to conjecture. Both substantial questions 1 and 2 are answered in favour of the assessee and against the Revenue; question 3 is academic.